Ireland withdraws grants for €1.6bn Intel fab

Wafer plant still go, says company

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In a surprise announcement on Wednesday, the Irish government said that it would withdraw its proposed funding for a €1.6bn Intel plant in Leixlip, Co. Kildare that is set to create some 400 additional jobs. The decision follows apparent concerns from Brussels indicating that the backing may not be allowed under EU rules.

Intel said it will still go ahead with the wafer fabrication factory, called Fab 24-2, but added that it may now be forced to reassess any future investments in Ireland. Already the company has some 4,700 direct and indirect employees on the Leixlip campus, as well as a further 110 people employed at Intel Communications Europe, located in Shannon. It is understood that prior to the decision to build the new Leixlip facility, Intel considered setting up plants in Israel, China and the US.

Early reports of a possible hold-up on the investment surfaced last weekend, but it was Wednesday before government development agency the IDA confirmed that the EU looked set to quash the Dublin government's backing for Intel's Fab 24-2, believed to be worth around €100m. "This decision was taken after consultations with Intel and follows a process, which over the past six months included extensive discussions with EU Competition Directorate at official and government level, regarding the project and its compliance with EU regional investment aid regulations," the IDA said in a statement.

"In the course of these discussions it became clear that the EU Commission was not disposed to approving the use of state aids by Ireland in support of the Intel investment," the agency added. In fact, the EU is understood to have been concerned about whether the proposed factory would create any jobs, much less the 400 jobs that were announced in May 2004, when the plan was announced.

Along with Intel's own reservations about working in Ireland, a great deal of concern is also now emerging over whether Ireland will have the power to attract large multinational corporations with generous aid packages - a key ingredient in the country's economic growth in the last decade. A source within the EU, speaking to the Irish Times, pointed out that the government's decision has apparently been premature, noting that Competition Authorities had not begun their investigation in earnest. "It doesn't suggest that the Irish government was very confident in its case," the unnamed European Commission source told the newspaper.

But more worrying, from an IDA perspective, are new rules in Europe which are expected to have a profound impact on the agency's ability to win enormous investments from multinational giants such as Intel. The new multisectoral framework on regional aid for large investment projects, which came into force in the European Union last year, says that investments worth more than €50m must now get a stamp of approval from Brussels. Investments that dominate within their sector - such as Intel - will not receive approval, unless the project concerned delivers an innovative new product.

Notably, projects that consist mainly of research and development - such as the recently approved Bell Labs R&D centre which was announced last year - are also likely to get the okay from the Commission.

Intel's Leixlip wafer fabrication plant apparently did not meet either criterion, despite IDA claims to the contrary. "As the Commission could not be persuaded from what we believe is a very narrow and unhelpful interpretation of the matter... the notification was withdrawn," the IDA said.

While the agency insisted that the move will not impact on Ireland's ability to attract new investment, it was very clear about its feeling towards the EU's interpretation of the rules, and the long-term consequences of its "narrow" view. "The competition for this investment was global, as will be the competition for future investments," the IDA said. "Europe cannot afford to lose access to the world's most advanced semiconductor technology."